Shire's Baxalta Acquisition: An Orphan Drug Market Dream?

After a long list of mergers and acquisitions in healthcare, what does Shire’s acquisition of Baxalta mean for the industry?

Research suggests approximately 95% of the estimated 6,000+ rare diseases are yet to have a single FDA-approved drug treatment. However, this could be a thing of the past, going by the current trends in the market.

The acquisition of Baxalta by
Shire being a case in point, following the trodden path of the
Sanofi-
Genzyme and the
Roche-
Genentech deals. With this successful acquisition, Shire is moving to consolidate its position in the orphan drugs market across therapeutic segments ranging from gastroenterology to lysosomal disorders.

Understandably, the orphan drug segment has enjoyed a longer exclusivity status from FDA, with companies spending less on shorter trials with smaller patient populations, along with a provision for a maximum pricing power to the invested pharma company, has made this segment a sweet spot for pharma mergers and acquisitions.

With the minimized patient population available for clinical trials, the market is also open to the adoption of genetic biomarkers and clinical endpoints for orphan drug clinical trials, a major step towards personalized medicine.

The orphan drugs market is very attractive: it's worth $100+ billion and has a CAGR of 12%, almost twice of the general drugs market. Of the top 10 projected best-selling drugs worldwide in 2015, almost seven bear the orphan status. Additionally, the market has had favorable regulatory environment, having witnessed a record year for FDA/EU/Japan orphan designations in 2014.

Baxalta's acquisition is very logical, as the company’s assets complement Shire's rare disease platform, which made up 40% of Shire's 2014 revenue. Additionally, it follows Shire’s recent portfolio expansion with the purchase of NPS Pharmaceuticals and its drugs for a rare disease, short bowel syndrome.

The combined entity can be shaped as a global leader in rare diseases with multiple billion-dollar franchises in high-value therapeutic areas with substantial barriers to entry. It puts Shire in fourth spot, very close to
Celgene and within reach of the market leaders of orphan drug sales,
Novartis and Roche. Building a strong diversified portfolio and achieving market leadership is very crucial for Shire to compete in this market, estimated to be worth $180+ billion in 2020!

This acquisition is in line with large platform acquisition activity like Abbvie-
Pharmacyclics (2015)
Amgen-Onyyx (2013) and Sanofi-Genzyme (2011), and also helps access a lower effective tax rate for the combined entity by 2017-2018.

This piece was written with contribution from Sangeetha Prabakaran, Program Manager and Nitin Naik, Vice President of Global Life Sciences with Frost & Sullivan’s Transformation Health Program.

I am a partner and Senior Vice President of Healthcare and Life Sciences at Frost & Sullivan, a global growth consulting and research firm. With over 25 years of healthcare consulting experience spanning numerous countries in Asia Pacific, Latin America and Eastern Europ...